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Beijing vows measures against United States tech ban on telecoms firm ZTE

17 April 2018

ZTE, which is headquartered in the southern city of Shenzhen, pleaded guilty in March 2017 and agreed to pay a $1.19bn (£829m) penalty for shipping the telecoms equipment to North Korea and Iran in violation of U.S. regulations.

China's Ministry of Commerce rapidly responded to the ZTE ban, saying it would take necessary measures to protect the interests of Chinese businesses. ZTE has had run-ins with the USA government before.

The ban is a blow to the face to many USA companies that supply ZTE with components, including Qualcomm Corp., Lumentum Holdings Inc. and Finisar Corp., all of whose shares dropped after the announcement.

"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company", ZTE's Chairman and Chief Executive Officer Zhao Xianming said at the time. In 2017, it derived 59 percent of revenue from its network business and 32 percent from its consumer business.

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The commerce Secretary Wilbur Ross said, "Instead of reprimanding ZTE staff and senior management, ZTE rewarded them".

As part of the agreement, Shenzhen-based ZTE promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them, senior USA officials told Reuters.

The company's initial guilty plea was met with up to $1.2 billion penalties and fines, along with the dismissal of four senior employees, along with more fallout for lower-level employees.

Saying ZTE was likely to miss shipments and lose orders, brokerage Jefferies downgraded its rating on the firm to "underperform" from "buy" and slashed its price target to HK$15.72, almost 40 percent below the firm's closing price prior to Tuesday's trading halt. The department accuses ZTE of covering up facts that it paid full bonuses to employees involved in the misconduct. This opened a new beginning to the argument that the foreign governments are exploiting the U.S.

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The move Monday by the US Commerce Department against ZTE, which sells smartphones and other telecommunications equipment around the world, comes amid a tense clash between the United States and China over trade and technology.

The NCSC said it would be "impossible" to manage risks to the telecommunications sector if ZTE equipment was deployed at scale and that using ZTE equipment and services would have a "long term negative effect" on the security of the UK.

"The UK telecommunications network already contains a significant amount of equipment supplied by Huawei, also a Chinese equipment manufacturer".

Similar sentiments were offered by U.S. Republican representative Robert Pittenger, who told Reuters, "China does not play by our rules, and we must be vigilant against Chinese threats to both our economic security and national security". Pittenger is sponsoring legislation that would strengthen the US national security review process for foreign investments.

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The action of the ban imposed by the USA on the ZTE corp. means that one of the world's top manufacturers of smart phones and communication gear will not be able to buy technology from American Supplies. Qualcomm declined to comment.

Beijing vows measures against United States tech ban on telecoms firm ZTE